Question
STU Ltd. is analyzing two projects, Project E and Project F, with the same initial investment of USD 90,000. The after-tax cash flows are: Year
STU Ltd. is analyzing two projects, Project E and Project F, with the same initial investment of USD 90,000. The after-tax cash flows are:
Year | Cash flows (Project E) | Cash flows (Project F) |
(Initial Investment) | (90,000) | (90,000) |
1 | 25,000 | 30,000 |
2 | 25,000 | 20,000 |
3 | 20,000 | 25,000 |
4 | 10,000 | 15,000 |
a. Determine the payback period for each project.
b. If STU Ltd.’s maximum acceptable payback period is 2.5 years, which project should they proceed with? Justify your decision.
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Horngrens Accounting
Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura
11th edition
978-0133851151, 013385115X, 978-0133866889
